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Gerard Burg, Senior Economist at NAB, suggests that there are a number of ways that China may seek to minimise the impact of recent US trade measures – such as easing monetary policy and greater fiscal spending, along with closer co-operation with the European Union.

Key Quotes

“According to data compiled by the American Enterprise Institute, there was little difference in the scale of Chinese investment in the United States and Australia between 2005 and 2013. Since then the US has been by far the largest individual recipient of these flows. However, in aggregate the European Union has received an even larger share of China’s investment since 2005.”

“China’s government has been working to strengthen its relationship with the European Union in recent months – with a meeting between Premier Li and German Chancellor Angela Merkel in Berlin in early July, before a summit with key EU leaders (such as European Council President Donald Tusk and European Commission President Jean-Claude Juncker) in Beijing mid-month.”

“Negotiations for an investment treaty between China and the European Union started in 2013, however little progress has yet been made. That said, the common issue of US trade sanctions (with the EU hit by steel and aluminium tariffs, along with proposed measures against European auto makers) may encourage a renewed effort by both parties.”

“That said, there remain some hurdles to overcome in building a close EU-China partnership – most notably concerns around intellectual property. While China has vowed to improve the enforcement of previously loose intellectual property protection, it is likely that there will be some scepticism until a tightening is evident.”